13.3 The Master Budget

Question 1

The master budget is also called

Answer 1

the comprehensive budget or annual profit plan

Question 2

The _________ budget encompasses the organization’s operating and financial plans for a specified period (ordinarily a year or single operating cycle)

Answer 2

Master budget

Question 3

In the _______ budget, the emphasis is on obtaining and using current resources.

Answer 3

Operating budget

Question 4

In the ________ budget, the emphasis is on obtaining the funds needed to purchase operating assets.

Answer 4

Financial budget

Question 5

A company uses a comprehensive planning and budgeting system. The proper order for the company to prepare certain budget schedules would be

A. cost of goods sold, income statement, balance sheet, and statement of cash flows
B. Income statement, balance sheet, statement of cash flows, and cost of goods sold
C. Statement of cash flows, cost of goods sold, income statement, and balance sheet
D. Cost of goods sold, balance sheet, income statement, and statement of cash flows

Answer 5

A. Cost of goods sold, income statement, balance sheet, and statement of cash flows

Question 6

The budget that describe the long-term position and objectives of an entity within its environment is the

Answer 6

strategic budget

Question 7

________ budget is a short-range management tool

Answer 7

Operating budget

Question 8

_________ budgeting involves evaluating specific long-term investment decisions

Answer 8

Capital budget

Question 9

_____________ budget is a short-range consideration related to liquidity

Answer 9

Cash management budget

Question 10

Which of the following is normally included in the financial budget of a firm?

A. Budgeted balance sheet
B. Selling expense budget
C. Sales budget
D. Direct materials budget

Answer 10

A. Budgeted balance sheet

Question 11

The financial budget normally includes

Answer 11

The capital budget, the cash budget, the budgeted balance sheet, and the budgeted statement of cash flows.

Question 12

The selling expense budget is included in the

Answer 12

operating budget

Question 13

The sales budget is included in the

Answer 13

operating budget

Question 14

Direct materials budget is included in the

Answer 14

production budget

Question 15

The foundation of a profit plan is the

Answer 15

sales forecast

For most companies, the starting point for the annual budget is the sales forecast. All other aspects of the budget, including production, costs, and inventory levels, rely on projected sales figures.

Question 16

Which of the following is normally included in the operating budget?

A. Capital budget
B. Selling expense budget
C. Cash budget
D. Budgeted balance sheet

Answer 16

B. Selling expense budget

An operating budget normally includes sales, production, selling and administrative, and budgeted income statement components.

Question 17

In the quest to develop a more achievable budget for the coming year, the chief executive officer has elected to develop the company’s budget by using a decentralized bottom-up budget approach. A production manager’s involvement in the budget process this year will probably

A. Be negligible
B. Require development of a production budget that is forwarded to the Budget Department.
C. Require development of a production budget based on the prior year’s manufacturing activity
D. Require development of a production budget after receiving the division’s projected sales forecast

Answer 17

D. Require development of a production budget after receiving the division’s projected sales forecast.

Question 18

A company produces farm tractors. The details of its budgeted cost of goods manufactured schedule should come from which of the following schedules?

A. Purchases, direct labor, manufacturing overhead, finished goods, and work-in-process
B. Direct materials used, direct labor, manufacturing overhead, and work-in-process
C. Cost of goods sold plus or minus the change planned in finished goods
D. Purchases, raw material, work-in-process, and finished goods

Answer 18

B. Direct materials used, direct labor, manufacturing overhead, and work-in-process

COGM equals all manufacturing costs incurred during the period, plus beginning work-in-process inventory, minus ending work-in-process inventory.

Question 19

The starting point for creating a master budget for a proprietary secretarial school would be

A. Estimating salaries of the instructors
B. Preparing the student recruiting budget
C. Forecasting enrollment
D. Preparing a capital expenditure budget

Answer 19

C. Forecasting enrollment

The sales forecast drives all the other components of the operating budget. How much revenue the firm expects to bring in affects every other decision.

Question 20

When budgeting, the items to be considered by a manufacturing firm in going from a sales quantity budget to a production budget would be the

A. Expected change in the quantity of finished goods and raw material inventories
B. Expected change in the quantity of finished goods and work-in-process inventories
C. Expected change in the availability of raw materials without regard to inventory levels
D. Expected change in the quantity of work-in-process inventories.

Answer 20

B. Expected change in the quantity of finished goods and work-in-process inventories

Production quantities are not identical to sales because of changes in inventory levels. Both finished goods and work-in-process inventories may change during a period, thus necessitating an analysis of both inventory levels before the production budget can be set.

Question 21

Individual budget schedules are prepared to develop an annual comprehensive or master budget. The budget schedule that would provide the necessary input data for the direct labor would be the

Answer 21

production budget

Once the production budget has been completed, the next step is to prepare the direct labor, raw material, and overhead budgets. Thus, the production budget provides the data for the completion of the direct labor budget.

Question 22

While an operating budget is a key element in planning and control, it is not likely to

A. provide subsidiary planning information
B. Establish a commitment of company resources
C. Integrate organizational activities
D. Set out long-range, strategic concepts

Answer 22

D. Set out long-range, strategic concepts.

Operating budgets seldom set out long-range strategic concepts because they usually deal with the quantitative allocation of people and resources. Strategic concepts are overall goals for the organization and are almost always stated in words.

Question 23

The master budget

A. Can be used to determine manufacturing cost variances
B. Contains the operating budget
C. Reflects controllable costs only
D. Shows forecasted and actual results

Answer 23

B. Contains the operating budget

All other budgets are subset of the master budget.

Question 24

All of the following are considered operating budget except the

A. Sales budget
B. Production budget
C. Capital budget
D. Materials budget

Answer 24

C. Capital budget

Question 25

Operating budget consists of all budgets that concern normal operating activities, including the

Answer 25

sales budget, production budget, materials budget, direct labor budget, and factory overhead budget.

Question 26

Select the ones that are included in the Financial budget

I. Capital Budget
II. Pro-forma Balance Sheet
III. Cash Budget
IV. All of the above
V. None of the above